Russian ruble firms ahead of expected interest rate cut

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The Russian ruble firmed on Friday, heading back toward a more than two-week high hit in the previous session with the support of capital controls, as the market awaited an expected rate cut by the central bank.

By 0724 GMT, the ruble was 1.1 percent stronger against the dollar at 58.71, not far from Thursday’s 57.4075, which was its strongest since May 25.

It had gained 2.1 percent to trade at 61.96 versus the euro, also close to a two-week high.

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The central bank is expected to cut interest rates, which could in theory put some downside pressure on the ruble and support prices of OFZ treasury bonds.

A majority of analysts polled by Reuters expect a 100-basis-point rate cut to 10 percent as the bank tries to make lending more affordable amid sluggish consumer demand and a pause in inflation, although some have suggested a sharper cut to 9 percent is possible.

The rate decision is due at 1030 GMT, followed by a media briefing with Governor Elvira Nabiullina at 1200 GMT.

The central bank’s decision is unlikely to affect the ruble rate, in view of existing curbs on capital flows, said Alfa Capital analyst Alexander Dzhioev.

“Nevertheless, it is worth noting that in combination with other factors, for example, abolishing mandatory foreign currency earnings sales by exporting companies, the currency could stop strengthening,” he said.

President Vladimir Putin signed a decree on Thursday that the market interpreted as a potential means for export-focused companies to scale down conversion of foreign currency.

Capital controls have obliged exporters to convert 80 percent of their revenues into rubles after Russia sent tens of thousands of troops into Ukraine on February 24. This ratio was later lowered to 50 percent in May.

Russian stock indexes were mixed.

The dollar-denominated RTS index was up 1.1 percent at 1,226.7 points. The ruble-based MOEX Russian index was 0.4 percent lower at 2,285.9 points.

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